ZZ Company is a manufacturer of carpets and rugs. 70% of its sales revenue comes from exporting its products.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [4] Governments encourage businesses to export because this helps the balance of trade/payments (1) all governments strive to have a surplus of exports over imports (1) The foreign currency earned from exports (1) helps to pay for the imports (1) Individuals/firms have been able to produce more goods and services than can be consumed at home (1) this prompted a search for foreign opportunities for surplus production (1) Individuals/firms have been able to sell goods or services to other countries at prices higher (1) than the prices they can obtain domestically (1) Helps employment opportunities (1) for people in exporting (1) Helps economic growth (1) improving national income/GDP (1) Export income can help in infrastructure projects (1) improving standard of living (1) Builds relationships with countries (1) helping future trade (1)
2. [3] Very important (1) as transport costs will depend on the distance the goods have to be transported to their final destination (1): the longer the distance, the costlier the type of transport used (1), e.g. exporting goods from UK to Africa (1); this will affect profit (1) Will have to consider what goods to be carried (1), e.g. if perishables, would prefer a shorter distance (1) and would require refrigeration for longer distances (1). It would not be economic to use rail transport to send potatoes from Nigeria to UK (1) No need to use air/sea for short distances (1), e.g. delivering bread supplies to local area (1) Air becomes more competitive on longer distances (1) if the value to weight ratio is not too low (1) Greater risk of non-payment (1) by buyers further away from the seller (1)
3. [1] Currency fluctuations Language barriers Cultural differences Different time zones Trade restrictions/tariffs/quotas Communication Legal system differences Credit risks Differences in weights/measures Extensive documentation/paperwork Political changes Trading regulations
4. [6] Level 2 (4-6 marks) Has discussed whether or not ZZ company should use its own sales staff or appoint agents and given a reasoned opinion Level 1 (1-3 marks) Has commented on the statement If a candidate has presented a one-sided argument, award 4 marks max. Appointing their own sales force would mean a team dedicated to selling ZZ products. This could maximize their sales The sales force will have to be recruited and trained in the South American country and this will be at a high cost They may have difficulty in recruiting salespeople who are knowledgeable about the market for carpets and rugs in that country Agents represent more than one company and there will be no dedicated sales force Agents are easier to set up and run than a separate sales force, and the initial costs will be much cheaper Agents work on commission and therefore the cost of an agent is directly related to the volume of sales generated It may be recommended that, in the early stages, agents are used since the initial costs are less, and they should have a good knowledge of the local market Only when sales have been established and the local market understood, should ZZ consider setting up their own sales force Alternatively, if market research has shown that their products should be successful, and ZZ have had previous experience of setting up a foreign sales force, then they may want to make a greater immediate impact by setting up their own sales force. It could be said that this is the riskier option
5. [2] Sales revenue is the value of sales earned (1) over a period of time/one month (1) It is the total number of products sold multiplied by price (2) It is the income/turnover made/received by a business (1) as a result of selling its goods/services (1)
6. [4] Sales revenue can be increased by sales promotions (1), e.g. 3 for 2 or offering a free prize draw with every purchase (1) By advertising (1) e.g. television (1) New products or changes to existing products/wider range (1) e.g. better rubber underlay (1) Offering good credit terms (1), e.g. longer payment period (1) Improved after-sales service (1) free delivery/repairs (1)